Legal Definitions - price support

A price support refers to a government policy or intervention designed to prevent the market price of a specific product or commodity from falling below a predetermined level. The primary goal is often to stabilize income for producers, ensure the availability of essential goods, or protect domestic industries from market volatility. This is typically achieved through various mechanisms, such as direct payments (subsidies) to producers, government purchases of surplus goods, or the establishment of minimum guaranteed prices.

• Example 1: Agricultural Subsidies for Wheat Farmers

  Imagine a country where the government wants to ensure its wheat farmers remain profitable and that the nation has a stable supply of domestically grown wheat. The government establishes a program that guarantees farmers a minimum price per bushel for their wheat. If, due to a bumper harvest or low global demand, the market price for wheat falls below this guaranteed level, the government pays the farmers the difference per bushel. This ensures that farmers receive a consistent income, regardless of market fluctuations.

  This illustrates a price support because the government is artificially maintaining the income for wheat producers by ensuring they receive a specific price, even if the open market would offer less. The subsidy acts as a floor for the farmers' revenue.

• Example 2: Strategic Purchases for Mineral Resources

  Consider a nation that relies heavily on a particular rare earth mineral for its technology industry. To ensure a steady domestic supply and protect its mining companies from extreme price drops, the government might implement a price support strategy. When global prices for this mineral are very low, the government could decide to purchase large quantities to add to its national strategic reserve. These purchases increase demand in the domestic market, helping to prevent prices from falling further and providing a floor for domestic producers.

  This is a price support because the government's active buying, especially during periods of low prices, creates artificial demand that helps to "support" the price of the mineral above what it might naturally fall to, thereby benefiting domestic mining operations.

• Example 3: Dairy Product Buyback Program

  In a region with a significant dairy industry, farmers often face fluctuating milk prices, which can make their businesses unstable. To address this, the government might implement a program where it agrees to buy surplus dairy products, such as cheese, butter, or powdered milk, from processors at a predetermined minimum price whenever market prices for these products drop too low. By removing excess supply from the market, the government helps to stabilize the overall price of dairy products.

  This demonstrates a price support because the government's intervention through purchasing surplus products prevents the market price of milk and dairy goods from falling below a certain threshold, thereby stabilizing income for dairy farmers and ensuring the continued operation of dairy farms.